What About Frugal Innovation?

North American funding for venture capital seems to be taking off. According to Preqin, North America-focused venture capital funds raised $10.6bn in Q2 2015, “the highest quarterly amount ever raised for the vehicles of this strategy,” according to ValueWalk.

But funding for innovation is not available to everyone. In his recent TED Talk, Navi Radjou discusses “frugal innovation,” a practice pioneered by emerging markets entrepreneurs who, despite being constrained by limited resources like capital, education, energy and healthcare, are able to create value through innovation. “They don’t invest stuff in big R&D labs. The street is their lab.”

With scarce resources, entrepreneurs and inventors have to look within themselves to “tap the most abundant resource, human ingenuity,” to solve problems. In India, this is called jugaad, a Hindi word for an improvised fix or clever solution born of adversity. “Jugaad solutions are not sophisticated or perfect but create more value at lower cost.”

According to Radjou, Jugaad entrepreneurs have mastered the art of doing more with less, the essence of frugal innovation. Importantly, frugal innovators don’t just make due, but make things better. They use what is most abundant to deal with what is scarce, turning a weakness into a strength. “With frugal innovation, the global south is actually catching up and in some cases leapfrogging the North.”

The conventional business model for innovation in the West is “more for more” and Radjou believes that this model is running out of gas. “First, a big portion of customers in the West because of the diminishing purchasing power, can no longer afford these expensive products. Second, we are running out of natural water and oil. In California, water scarcity is becoming a big problem. And third, most importantly, because of the growing income disparity between the rich and the middle class in the West, there is a big disconnect between existing products and services and basic needs of customers. Today, there are over 70 million Americans today who are underbanked, because existing banking services are not designed to address their basic needs.”

In Africa, entrepreneurs are finding ways to provide solutions for the economy’s poorest participants. Vital Sounouvou, an African entrepreneur, was told in college that he wouldn’t get a job after graduation. He started a company instead. Today, he runs Exportunity.com “an online platform that connects producers with traders. It allows a farmer in Benin to sell his products to a buyer in South Africa — or even the U.S. — with just a cellphone,” NPR reports.